Financial Attention and the Disposition Effect
61 Pages Posted: 15 Mar 2018 Last revised: 9 Dec 2019
Date Written: April 16, 2019
Using a novel brokerage dataset covering individual investors' login and stock trading behavior, we investigate the severity of the disposition effect as a function of attention. Our results show that more attentive investors trade less in line with the disposition effect, suggesting a comparative advantage in incorporating information into financial decision making. Furthermore, we find that high attention is related to a stronger tendency to sell moderate losses, as compared to large ones, while low attention increases an investor's likelihood to sell extreme, rather than moderate, profits. These results are in line with the theory of cognitive dissonance and saliency effects.
Keywords: Investor Behavior, Disposition Effect, Attention Allocation
JEL Classification: G11, G41
Suggested Citation: Suggested Citation